All posts tagged ireland

The Euro zone crisis is moving at an astonishing rate. It is complicated enough for an individual government to arrange its response in the middle of a crisis, but when there are so many players involved – as in the Euro zone, with its coach load full of finance ministers, national leaders, the ECB and the EU – it is even more difficult. Add in the speed of the modern news cycle and it is clearly intensely difficult.

“It is not just individual economies and a currency that are under pressure. Several big ideas are being stress tested here.
First, the bailing out and unlimited guaranteeing of banks—a major factor in the Irish end of the crisis. The orthodoxy that established itself after the collapse of Lehman Brothers stipulated that the inter-connectedness of financial institutions made it unthinkable that major players should be allowed to fail. That was the logic of the panic of late 2008 and early 2009.

Angela Merkel, the German Chancellor, says that this has gone too far, and that eventually bond holders and institutions must take a share of the pain. But the result of her comments on the matter was an acceleration of the crisis in Ireland and eventually a giant loan to bail out the Irish banks.

It seems that once you start bailing out banks it is difficult to stop, and if you accept the theory of inter-connectedness then is there anything large and financial you won’t rescue to buy a bit of stability, even if it is for half a day?

Then there is the late 20th century idea of closer European integration itself, or more specifically the Mitterrand-Kohl idea of Europe that emerged from the rubble of the Cold War. The European political class has invested heavily in what started out as a co-operative exercise in the 1950s but in time has become something else: a great cause to unite a continent say its supporters, a political grand project that was always going to collide with market realities say its critics.

Sometimes big ideas fail. And history suggests that right up until the moment that they do, very large numbers of people will maintain that failure is unthinkable.

Perhaps that is not about to happen in terms of European togetherness, and the crisis will slow down with order restored. But what is holding together the euro zone today? It is now no longer the dreams of an elite determined to construct a rival to the U.S. that could parley on equal terms with the emerging powers. Today it is being held together by simple fear of the alternative.”

Once you start bailing out banks it can be difficult to stop. Several years in and the colossal sums keep on coming, or going.

Today it’s Ireland. The Irish bailout is really a bailout of the country’s crippled banks, the deposits and liabilities of which the government guaranteed in a disastrous decision. Now Germany, Britain and others fear the implications for their own financial institutions, which are exposed to the Irish banks, and are stumping up.

Vast bailouts have become so much the prevailing orthodoxy, that it seems there is no other way. Doesn’t the alternative involve Armageddon and a return to the stone age?

Ireland’s latest GDP figures came out today and they were much worse than anticipated (down 1.2% in the second quarter). Ireland had only emerged from recession the quarter before. The news will fuel fears of a double dip recession, and, when added to the poor numbers in the euro-zone purchasing managers index, given markets a hit.

In Britain it plays right into the debate about public-spending cuts. Ed Balls and others will presumably say it proves that Ireland’s deep cuts in spending have contributed to the country’s economy going into reverse, and that the U.K. government led by David Cameron risks doing the same.

The coalition parties are trying to anticipate the attack, pointing to reduced borrowing costs as evidence that their cuts are boosting market confidence in Britain. Matt Hancock, former George Osborne staffer and now a backbench MP, made this case in The Times on Thursday. His mission is to make borrowing costs seem less abstract, and place them in a context voters will instantly understand.